Thanks to Becky in Tucson for the comprehensive thread entitled "Where's Fennario." I've been singing the song since the '60s, when I heard Fred Neil, Ron Kickasola or Vince Martin (hard to remember which) do it at the Flick Coffee House in Miami, near the university.

The American version is obviously a Civil War allusion, with the "coat of blue" line and Louisiana connection. Back in those folk days I heard this interpretation: Fennario was a mythical place and a symbol of the last city that would have to fall before the war could be over and everyone go home. Thus, it was a symbol of victory for the North and a symbol of defeat for the South, and a shared symbol of war's end for both sides. The Northern soldiers are searching for that last city, Fennerio, a farewell to arms.

Captain William isn't a very nice guy, in that he predicates his supposed love and couchs his proposal of marriage to Peggy in terms of sparing the city: he can only think in martial terms, even in affairs of the heart. When spurned, he likewise can only invoke the language of war: to seek revenge with military action and burn the city, and destroy, not only Peggy, but all the ladies in the area.

I see no mention of this symbolism in the exhaustive "Where's Fennario" thread, so perhaps I am recalling a fanciful, and now moldy interpretation of a single performer. That kind of pseudo folklore happens all the time.